Chatham Lodging Makes First Move with $73.5M Portfolio Purchase

Only days after having completed its $160.4 million initial public offering, Chatham Lodging Trust has made its first acquisition. The Palm Beach, Fla.-based hotel REIT just plunked down $73.5 million to purchase a six-property portfolio of Homewood Suites by Hilton Hotels from RLJ Development L.L.C.

April 28, 2010
By Barbra Murray, Contributing Editor

Only days after having completed its $160.4 million initial public offering, Chatham Lodging Trust has made its first acquisition. The Palm Beach, Fla.-based hotel REIT just plunked down $73.5 million to purchase a six-property portfolio of Homewood Suites by Hilton Hotels from RLJ Development L.L.C.

Chatham’s target assets are upscale extended-stay and premium-branded select-service hotels in leading markets with high barriers to entry and locations within close proximity of strong demand generators. The purchase from RLJ has allowed the REIT to make its debut with an immediate entrĂ©e into markets on the East Coat, as well as in the South and the Midwest.

Accounting for an aggregate 813 guestrooms, the group of properties includes the 147-room Homewood Suites by Hilton Boston in Billerica, Mass. and the 121-room Homewood Suites by Hilton Hartford – Farmington in Farmington, Conn. The remaining assets are the 144-room Homewood Suites by Hilton Minneapolis – Mall of America in Bloomington, Minn.; the 137-room Homewood Suites by Hilton Dallas – Market Center in Dallas, Tex.; the 143-room Homewood Suites by Hilton Orlando – Maitland in Maitland, Fla.; and the 121-room Homewood Suites by Hilton Nashville – Brentwood in Brentwood, Tenn. Over the next two years, Chatham will invest approximately $11 million to upgrade the properties.

The hotel market, including the extended-stay sub-category, has been pummeled by the recession. However, as is the case with all sectors of commercial real estate, recovery is inevitable, as the real estate market is cyclical. But specific investment strategies, such as Chatham’s focus on upscale extended-stay and premium-branded select-service hotels in prime markets, are key. “What we’re seeing is the market is recovering quickest from top to bottom, from the upscale market down, but like all things, all real estate is local and that is the case within the extended-stay market,” Thomas E. Callahan, President of hospitality research firm PKF Consulting Corp., told CPE. “Upper scale extended-stay got hurt the worst–business travelers downgraded–but it’s recovering the quickest. People are trading back up; room rates have declined so people are trading up and occupancy levels are higher.”

And upper-scale properties within the select-service sub-sector offer other advantages from an investment perspective. “Generally speaking, there are more barriers to entry for upper tier, higher end properties,” Callahan noted.

Additional acquisitions are on the horizon for Chatham. The REIT has a group of four hotels under a non-binding letter of intent to purchase for $61 million, including the assumption of $12.7 million in existing debt on two of the assets. If the transaction reaches completion, Chatham will have increased the size of its portfolio with the addition of 444 guestrooms.